Ofcom begins crackdown on auto-renew telco contracts

'Man, we're already totally competitive', grumbles BT

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Telcos have until the end of this year to lock landline and broadband customers into automatically renewed contracts after Ofcom kiboshed the practice.

Currently, unless a punter opts out, some ISPs including BT automatically renew such contracts, and apply penalties to small biz and residential customers who leave their service provider early.

As of 31 December 2011, rollover contracts will be banned, Ofcom confirmed this morning. It estimated that about 15 per cent of UK customers who sign up to a broadband and landline provider are tied to Automatically Renewable Contracts (ARCs).

The watchdog said it would require comms outfits to eventually shift all residential and small business customers off rollover contracts and over to alternative deals.

“Ofcom’s evidence shows that ARCs raise barriers to effective competition by locking customers into long-term deals with little additional benefit. Our concern about the effect of ARCs and other ‘lock in’ mechanisms led to our decision to ban them in the communications sector,” said the regulator's chief Ed Richards.

BT said it was unhappy with Ofcom's decision and claimed its customers benefited from discounts granted as a result of offering them renewable contracts with the telco.

"We don’t believe there is any evidence that they damage competition, given that the UK telecommunications market is amongst the most competitive in the world," said a BT spokesman.

"We have worked hard to make sure that customers understand what they are signing up to, including how the renewal works and the charges that apply if they choose to leave early.

"In exchange for these terms, customers receive a significantly lower price, and as the renewal date approaches we contact them to give them 30 days' notice to end the contract without charge."

BT added that it would no longer be selling ARCs to residential customers now that the ban has been confirmed by Ofcom.

"We will be letting existing customers know over the next few months what BT can offer as an alternative, and we’ll aim to maintain the low prices we offer wherever possible, if customers want to stay with BT," added the spokesman. ®